As the first emirate to introduce a compulsory medical insurance scheme for expatriate workers in 2006, Abu Dhabi has long been a leader in the health care sector. Since then, the Health Authority – Abu Dhabi (HAAD) has continued to implement changes to improve the health insurance system, including a 2010 decision to require all hospitals and insurers to bill based on diagnosis-related groups (DRGs) by the end of 2011. The expectation is that over time it will improve efficiency in the provision of health care in the emirate.
There are three broad categories of health insurance in Abu Dhabi: thiqa, basic and enhanced. The thiqa plan, in which all Abu Dhabi nationals have been required to enroll since 2008, provides comprehensive coverage at no cost to plan participants. The remaining two plans are directed towards expatriates residing in the emirate.
The basic plan is the mandatory minimum coverage, offered at the government-subsidized price of Dh600 ($163) per year. Alternatively, non-nationals also have the option of enrolling in an enhanced plan, which provides additional coverage, but premiums are set by the market. The thiqa and basic plans are administered by Daman, a government-owned, specialized health insurance company that was set up in 2005, while enhanced plans are offered by a variety of private sector players in addition to Daman.
These same three categories also determine how providers, such as physicians, hospitals and labs, are reimbursed. For patients that are covered by the basic plan, the government sets the tariffs that providers receive. For services rendered to people enrolled in one of the enhanced plans, private sector insurance companies and providers negotiate payments. For thiqa plan participants, the health care provider is paid the equivalent of the highest rate negotiated under Daman’s enhanced plans.
While in the past, providers in Abu Dhabi were often reimbursed on a fee-for-service basis, the government is now requiring all health insurance payments (both public and private) to a system based on DRGs for inpatient care.
Under a DRG system, the insurer – or the government – reimburses the hospital based on the average cost of treating patients with similar clinical profiles and requirements for treatment, rather than the actual cost incurred for a particular patient. That is, the payment is set ahead of time, regardless of the number of tests conducted, the patient’s length of stay, materials used, and so on. Each DRG can be generally thought of as a “product” offered by a hospital, such as an appendectomy.
DRG-based reimbursement, which has been adopted in many countries over the past few decades, offers many advantages over the older fee-for-service system. First and foremost, it encourages efficiency on the part of health care providers, requiring them to share the risk burden with payers.
Indeed, when the US government first introduced DRGs in the early 1980s as the method of reimbursing hospitals for the treatment of Medicare patients, health care annual inflation dropped from 14% to 3%. It can also simplify billing procedures between hospitals and payers, as well as prevent hospitals from providing unnecessary services for the purpose of higher billing.
DRGs also provide an improved basis for health care funding and budgeting, according to Zaid Al Siksek, the CEO of HAAD. “Implementing DRGs is very important for the future of health care in Abu Dhabi. This will allow the government to change the sector from a retrospective cost-modelling system to a prospective cost-modeling system and enable better cost forecasting,” said Al Siksek.
Since August 2010, HAAD has required all hospitals – both private and public – to use DRGs when submitting claims for patients covered by the basic plan. In 2010 the authority also announced that providers and insurance companies would be required to transition to DRG-based reimbursement for all inpatient claims by December 31, 2011. In other words, not only would contracts between the state and the hospitals be required to be based on DRGs, this would also be true for agreements negotiated between two private parties.
This is potentially a significant change for both insurers and hospitals, and for several reasons. First, it almost certainly requires a different approach to negotiations between providers and payers. Most notably, a “base rate” needs to be negotiated, which provides the starting point for all payments from an insurer to a hospital in a DRG-based reimbursement system. Calculating a base rate may be a non-trivial task for both parties.
Second, from the perspective of the hospital, they potentially need to install new billing systems and train staff – both medical and administrative – on how to use them. This includes taking steps to ensure that medical services are appropriately documented and that coding of services is in line with HAAD regulations.
To help ensure a smooth transition, HAAD held a number of workshops in 2011 to assist market participants in gaining an understanding of the new system. By late 2011, most hospitals had made the transition, perhaps due to the fact that they had been required since mid-2010 to submit DRG-based claims for patients covered by the basic plan.
However, insurance companies were slower to adopt the new system, and in November 2011, HAAD announced that it would grant exemptions to all health care entities that submitted a request for delay. Nonetheless, the authority made clear at the time that this transition had to occur by March 31, 2012.
While universal health insurance has undoubtedly brought many benefits to Abu Dhabi, it has financial implications for the government. And, with the cost of medical provision rising faster than general inflation, the emirate has good reason to implement strategies designed to slow this rise in prices.
The use of DRGs for the basis of reimbursement – when combined with other changes that have been implemented, such as a standard provider contract – could help ensure that providers have incentives to be efficient and costs are kept in check.
Oxford Business Group